“What does winding up a limited company mean? How can I wind up a business?”

Winding Up a Limited Company UK

Essentially, winding up a limited company is just another way of saying you are liquidating your limited company but the term ‘winding up’ is more commonly linked to when a creditor is winding up a company. When considering liquidating a limited company in the UK you should first establish whether your company is solvent or insolvent. Have a look at our ‘What is Insolvency’ page to find out.

Winding Up a Solvent Company

If your limited company is solvent and you want to wind up a company then you should consider a members’ voluntary liquidation. This is relevant when liquidating a company voluntarily, as long as it does not have any debts and a declaration must be signed verifying this fact. We have specialist tax consultants who can provide appropriate tax advice on a member’s voluntary liquidation and the tax can often be reduced to 10%.

More often than not, however, a director will seek help when a creditor is threatening winding up of their company and so the bulk of this section will therefore deal with these scenarios. Generally there are two different types of insolvent liquidation and they are:

Compulsory Liquidation (via Winding Up Petition)

Creditors’ Voluntary Liquidation

Winding Up an Insolvent Company Voluntarily

If your company is insolvent and cannot afford to pay the bills on time then you may want to consider a creditors’ voluntary liquidation for your company. As a limited company is a legal entity in its self the debts belong to the limited company not the officers of the company (directors) unless personal guarantees have been signed. The winding up of a limited company allows the debts to be liquidated along with the company once finally struck off the company register.

When learning how to wind up a limited company the situation can be tricky as directors can leave themselves open to attack by creditors if they make the wrong move. In some cases, engaging an insolvency practitioner as your first port of call could be the worst thing you could possibly do. This is explained more on the Insolvency Practitioners UK page. If you wish to speak to a specialist who can help you with a creditors’ voluntary liquidation and winding up a limited company voluntarily call 08000 746 757; or email info@companydebt.com.

Compulsory Liquidation of an Insolvent Company with a ‘Winding Up Petition’

Limited company liquidation takes an even more serious turn if you have received a winding up petition or winding up order against your company. If you have received a winding up petition or a winding up order against your company then please seek advice as soon as you can. A winding up petition means that a creditor is trying to force your business into liquidation and you will lose control of the situation once the Official Receiver has been appointed. In fact the director/s will start to lose control once the winding up petition is advertised in the government’s insolvency register (The Gazette). The company bank account will very likely be frozen and company assets cannot be moved or sold so we recommend seeking help when threatened with a winding up petition. It is worth remembering that one of your creditors has taken the time, trouble and expense to discover how to wind up a limited company.

The limited company liquidation will be forced via the winding up petition presented to the court and will end in a winding up order and subsequent compulsory liquidation of the company. A compulsory liquidation of the company should be avoided in most cases due to the inherent risks involved in this form of limited company liquidation.

In essence the director has a legal duty to close the company appropriately for example a creditors’ voluntary liquidation would be regarded as appropriate whereas a compulsory winding up of the company is a forced liquidation so regarded as inappropriate.

We are very experienced at fighting winding up petitions and we have been successful in doing so and in the majority of cases we can usually rescue the business if not the company.

Knowing who to trust can be hard when considering winding up a limited company so make sure you read through our testimonials page and if necessary, we can also arrange for you to speak with some of our previous clients as further testament to our limited company winding up services.

Prefer to talk? Speak with one of our specialist team members today on 08000 746 757; or use the live support facility at the bottom of the page to get an answer fast about winding up a company. Alternatively, you can contact senior turnaround practitioner Mike Smith on 07912 344 394.

What is a CVA?

A CVA, otherwise known as a company voluntary arrangement, allows you to protect your insolvent company against legal action such as a winding up threat, as with administration, but with the purpose of creating a legally binding payment plan with your company’s creditors. The cva is tailored around your company’s cash-flow so that your company’s debts can be repaid, either in part, or in full over a maximum of five years. A cva is initiated by you (the director), not the creditors or shareholders and must provide a better return for creditors than company liquidation.

When used correctly, a cva can provide a perfect tool to renegotiate troublesome trade agreements whilst allowing you to trade on through a financially challenging period. This solution should only be considered if you believe your company is viable, but needs some help to trade through.

What is a CVL?

ACVL is also known as a creditors voluntary liquidation. It is a solution that allows you to close your insolvent company with or without the permission of creditors and generally it allows the company to write off unsecured debts. This type of liquidation is initiated by you (the director), not the creditors as the name may lead you to believe. Choosing the right insolvency practitioner can be critical when considering liquidation. Insolvency practitioners will usually specialise in one area or another so lea that way when selecting a potential solution. There may be an alternative to a creditor voluntary liquidation. Ask to speak with previous clients as testament to their services before committing to any insolvency practitioner to carry out a creditors’ voluntary liquidation. It is also worth noting that you should be careful about what is said to a potential liquidator as they act for creditors not you, the director.

What is a Pre-Pack?

A pre-pack can refer to pre-pack administration or pre-pack liquidation, either way, for the insolvent company the solution involves having a future buyer lined up to purchase the more profitable parts of the business, whilst leaving the debts behind. It is important to obtain specialist insolvency help immediately if you think this may be a viable solution for your company as strict procedures must be followed if you, as a director are a ‘connected person‘, are considering purchasing your company’s assets. Nevertheless, if your business is generating revenue producing contracts, has sizable assets or properties, but they are under threat from serious litigation, winding up, or angry creditors; a pre-pack administration can provide a very powerful legal solution for your company.

What is administration?

Administration is a very powerful legal tool that can be used to; first, stop legal action against your insolvent company and then:
Get a better return for the creditors than would be obtained via an immediate liquidation, or rescue your company from creditor threats of serious legal action (statutory demand) and or compulsory liquidation (winding up), or serious financial difficulty, as it provides you with more time allowing for a rescue strategy to be put in place for everyone’s benefit.

What is Insolvency?

There are two key tests/questions that apply to companies when defining whether it is insolvent or not and they are:

The cash-flow test: Can the company pay its bills when they are due?

If the answer is NO, then your company is likely to be insolvent and you should seek advice.

If the answer is YES, then your company is likely to be insolvent and you should seek advice.

Is this the end?

No. Insolvency does not have to spell the end for your business as there are a number of tools that we can use to secure both your future and/or your company’s future whilst protecting you fully and minimising any potential risks. It is critical to obtain insolvency advice as soon as you are aware your company is insolvent as you may be trading wrongfully. In addition the longer you continue to trade whilst insolvent your options are likely to reduce in number.

Directors Loan Advice?

Around 70% of directors have a problem with an overdrawn directors loan account at some stage and in the majority of cases we can help. Most commonly, the director seeks advice from an accountant who tells him/her to take a minimum salary in order to keep national insurance and tax at the lowest levels and to then take dividends to supplement their income. This then causes an unpaid debt which is owed to the company. This is very acceptable tax advice until something goes wrong which could be a sharp, unexpected drop in revenues for whatever reason or a threat of a winding up petition from HMRC.The directors then become debtors (someone who owes money) to the company and any liquidator, has a duty to pursue the director to the point of bankruptcy, if the debt cannot be repaid.

Help With Tax Debts

Around 70% of our work involves HMRC in one way or another, including providing advice on assets being seized, distraint warrants, winding up petitions, negotiated settlements, time to pay arrangements, field officer visits, compliance team visits and more. HMRC are responsible for more winding up petitions than any other organisation so always act swiftly if threatened with a ‘statutory demand‘, ‘legal action’ or ‘winding up’.

What do you charge?

If your case involves administration, company voluntary arrangement (cva) or liquidation you will never pay any fees to us. When an insolvency solution is required such as a cva, administration or liquidation – we get paid for all of these by completing the field work for the insolvency practitioners. This relationship benefits you in more than one way: As you may already know, once an insolvency practitioner is engaged by your company they are duty bound to work for the creditors. So once engaged, an insolvency practitioner cannot address any potential personal implications that may be directly caused by the insolvency process as it would be a direct conflict of interests for them to do so. Jameson Smith & Co puts your protection first, whilst working with the insolvency practitioners so you have full peace of mind.

Any insolvency procedure can be quite daunting even for the most confident director but we are with you every step of the way. Company insolvency is a very regulated area and it is very easy to make simple mistakes that can cost the director dear personally. It makes sense to have someone on your side throughout the process who has the experience to guide your hand.

The principle s exactly the same for administration and company voluntary arrangements – we do not charge for advice.

Personal Guarantee?

What is a personal guarantee?

A directors’ personal guarantee is essentially a promissory note to pay an organisation regardless of your company failing or going into liquidation. At some stage you may have signed an agreement with the bank or another trade creditor, making you personally liable for a specific debt. Once you realise that your company is heading towards insolvency you should seek advice on how to tackle this situation immediately if you are in any doubt about what to do.

Banks will often support personal guarantees with a charge on the family home and, or a debenture usually a fixed and, or floating on the company assets. Be aware by giving a charge on company assets affords the bank special ‘secured creditor’ rights which can mean the closure of the company on their terms and when they wish. Often terms and conditions not being met is the sole reason for often closing decent companies.

The best time to address a personal guarantee is before you close the company not afterwards so if you are thinking of closing your insolvent company seek help now.

We specialise in helping directors address their personal guarantees and providing solutions to allow the directors to exit the situation in the best financial shape possible.

Read our page on directors’ personal guarantees for more information on how we can help you.

Winding up Petition?

What is a winding up petition?

A winding up petition is the application for a forced/compulsory liquidation of a limited company or partnership. This is usually initiated by a creditor (person/business that your company owes money to). Winding up petitions should never be ignored. There can be serious implications if communication with the relevant creditor or immediate action is neglected at this stage. It is critical for the director/s to act swiftly and even at this stage the business and or company may be saved.

The company being ‘wound up’ will be investigated by the Official Receiver (Except Scotland). The director’s actions or lack of action is specifically scrutinised by the Official Receiver and evidence of wrongful trading will be investigated.

The director of a company that is forced into company liquidation statistically is more likely to be subject to company director disqualification (CDD). The Official Receiver (Except Scotland) main aim though is to get the best return for the company creditors.

Be aware it is very rarely in the interests of the director to allow themselves to be wound up due to the lack of control and risks to director/s. You must seek professional insolvency help immediately. Your accountant is unlikely to be able to advise accurately and a wrong decision at this stage can be fatal for the insolvent company.

Be aware HMRC are responsible for more winding up petitions than everyone else put together.

Written by: Mike Smith

Statutory Demand?

What is a statutory demand?

A statutory demand is a documented written request, usually sent from a creditor for payment of a debt that is owed. You would have 18 days to negotiate a settlement or ask the court to set-aside (dismiss) the demand. If there is no settlement agreed or the debt is not contested within 18 days from receiving the statutory demand you are given a further 3 days to pay in full. This is a very serious documented demand and should not be ignored in any circumstances. After the 21 day period has lapsed and if there is no response to the document, the creditor can then petition to court for a winding up petition of the company for a debt as little as ￡750 though this is currently under review at the time of writing.

Technically the statutory demand process was created with an individual in mind and no actual different process is legally recognised for a company. The statutory demand must be served correctly and proof of service is essential for the statutory demand to be successful. Provided the statutory demand is served at the company’s registered office; by registered letter and signed for the demand should be accepted as being served correctly.